Apple (AAPL) Down To Strong Sell On IPhone And China Woes

On May 11, 2016, Zacks Investment Research downgraded Apple Inc. (NASDAQ:AAPL) to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market over the next one to three months.

The iPhone maker has seen downward estimate revisions since it announced second-quarter fiscal 2016 results on Apr 26, 2016.

Why the Downgrade?

Apple delivered soft second quarter results with both top and bottom lines missing expectations. But more importantly, this was the first time in 13 years when the tech giant saw its sales decline on a year-over-year basis. This was also the first time ever that the company saw a decline in iPhone sales. The company even gave a muted guidance for the current quarter.

The business has been impacted due to weak macroeconomic conditions across most of its key regions, especially in China, which is the second largest market for Apple. Not only China, Apple also saw weak demand (primarily for iPhone) in all other key regions excepting Japan.

It appears that Apple’s growth has become a bit tied to demand in China. Therefore, a weak economy, increasing competition from lower-priced devices and most importantly regulatory hurdles are acting as a speed breaker for the company’s growth.

As a result, over the last 30 days, the company witnessed downward estimate revisions, which pushed down the Zacks Consensus Estimate for earnings in 2016 by 7.4% to $8.40 per share.

Nonetheless, while it’s difficult to predict on Apple’s growth in China, the company should see some revival once it launches the much awaited iPhone 7 in Sep 2016. Meanwhile, Apple is also working on paving its way in emerging markets like India, which can become an important growth driver over the next few years.

Stocks to Consider

Some better-ranked stocks in the broader technology sector include Facebook, Inc. (NASDAQ:FB) , PetMed Express, Inc. (NASDAQ:PETS) and Barracuda Networks, Inc. (NYSE:CUDA) . All these stocks sport a Zacks Rank #1 (Strong Buy).